569 S.W.3d 116
Tex.2018Background
- Rickey Newsome assigned 120 monthly structured-settlement payments to RSL Funding in exchange for $53,000; their contract contained a broad arbitration clause delegating arbitrability to an arbitrator and invoked the FAA.
- Texas law (Structured Settlement Protection Act) requires court approval for transfers; RSL obtained a district-court approval order that included a handwritten judge’s requirement that RSL pay Newsome $53,000 within 10 days or $106,000.
- The transferee missed the 10-day deadline; the court later issued a nunc pro tunc order removing the 10-day penalty after mediation.
- Newsome filed a bill of review and related pleadings attacking the nunc pro tunc order (and alternatively the original order), seeking relief and arguing the nunc pro tunc was void; the trial court partially declared the nunc pro tunc void and reserved other relief, and denied RSL’s motion to compel arbitration.
- The court of appeals affirmed denial of arbitration, concluding the dispute over the approving court’s orders was a non-arbitrable, purely judicial matter; this Court granted review.
Issues
| Issue | Plaintiff's Argument (Newsome) | Defendant's Argument (RSL) | Held |
|---|---|---|---|
| Whether a delegation clause in the transfer agreement applies when validity of the approving court order is disputed | The approval/order challenge is a judicial matter (bill of review) and thus not for arbitrator; court has exclusive power over such attacks | Parties agreed to delegate arbitrability to an arbitrator; FAA and separability require courts to send gateway issues to arbitrator when delegation clause exists | Delegation clause controls; court of appeals erred — compel arbitration so arbitrator decides arbitrability |
| Whether the Structured Settlement Protection Act prevents arbitration or voids the arbitration agreement absent valid court approval | Section 141.004 makes approval a condition precedent to an enforceable transfer, so no enforceable arbitration agreement exists unless court order valid | Even if statute requires court approval, the statute is silent about arbitration; challenges to enforceability (public-policy) are for arbitrator under separability; only formation defenses are for court | The statute does not bar arbitration; separability means arbitrator decides enforceability challenges not going to contract formation; court may decide formation only if properly raised, which Newsome failed to do |
| Whether the court of appeals applied a “wholly groundless” exception to delegation clauses and whether Texas should adopt it | Court of appeals effectively held the dispute irrelevant to arbitration; implicitly supports denying delegation when claim is plainly groundless | RSL argues no such exception applies and the court should enforce delegation clause; federal circuits are split | Court did not decide adoption of the "wholly groundless" exception; it held the court of appeals erred by deciding arbitrability instead of enforcing the delegation clause |
| Whether RSL’s motion to compel arbitration should be granted | N/A (respondent seeks to compel arbitration) | N/A | Grant motion to compel arbitration; remand with instructions to order arbitration |
Key Cases Cited
- First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (distinguishes who decides arbitrability; courts normally decide unless parties delegate it)
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (parties may validly delegate gateway issues of arbitrability to arbitrator)
- Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (Texas enforces valid delegation clauses; courts should compel arbitration when delegation exists)
- Prima Paint Corp. v. Flood & Conkling Mfg. Co., 388 U.S. 395 (U.S. 1967) (separability doctrine: arbitrability of contract defenses that attack enforceability generally for arbitrator)
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (arbitrator decides contract-wide defenses to enforceability; cited here for separability)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (illegality as a contract defense is for arbitrator, not court)
- 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (U.S. 2009) (arbitrators are competent to decide legal and factual disputes the parties agree to arbitrate)
- Morgan Stanley & Co. v. [In re Morgan Stanley & Co.], 293 S.W.3d 182 (Tex. 2009) (distinguishes formation challenges — courts decide — from enforceability defenses — arbitrator decides)
- CVN Group, Inc. v. Delgado, 95 S.W.3d 234 (Tex. 2002) (statutory allocation of a judicial function does not necessarily preclude arbitration of related disputes)